Exercise 1: Classification of cash flow

Determine transactions or events reflecting (1)the form of cash (sources) Or (2) using cash (use
of courses), or (3) Adjusting which causes the shape or using cash (based on indirect approach).
Arrange statements of cash flows:
operating activities (O), financial activities (F), investment (I), or had no effect (NE).
Example:
Use classification in
capital adjust the statement of
Transactions, situation Capital
(assets) cash flows
Dividends received x F

a. Increase in accounts receivable x O

b. Pay debt x F
c. Issue common stock x F
d. Sell securities x I
e. Pay bonds x F
f. Declare dividends x NE
g. Sell equipment x I
h. Transfer from bond to x NE
preferred stock
i. Pay dividends x F

Midterm test
1. The cash flow that is available for distribution to a corporation's creditors and stockholders is
called the: Cash flow from assets
2. Which term relates to the cash flow that results from a company's ongoing, normal business
activities: Operating cash flow
3. Cash flow from assets is also known as the firm's: Free cash flow
4. Cash flow to stockholders is defined as: Dividend payments less net new equity raised
5. Which one of the following is an expense for accounting purposes but is not an operating
cash flow for financial purposes: Interest expense
6. Which one of the following statements is correct concerning a corporation with taxable
income of $125,000: An increase in depreciation will increase the operating cash flow.
7. RTF Oil has total sales of $911,400 and costs of $787,300. Depreciation is $52,600 and the
tax rate is 21 percent. The firm is all-equity financed. What is the operating cash flow?
Total sales $911,500 Tax rate 21%
Costs $787,300
Depreciation $52,600
---
EBIT = Total sales-costs-depreciation = $911,400-$787,300-$52,600 = $71,500
Tax= EBIT× tax rate = $71,500×0.21 = $15,015
OCF= EBIT + depreciation- Tax = $71,500+$52,600-$15,015 = $124,100-$15,015 =
$109,085
RTF oil has an operating cash flow of $109,085.

8. Nielsen Auto Parts had beginning net fixed assets of $218,470 and ending net fixed assets of
$209,411. During the year, assets with a book value of $6,943 were sold. Depreciation for the
year was $42,822. What is the amount of net capital spending?
Net capital spending = NFA end – NFA beg + Depreciation =$209,411 − 218,470 + 42,822 =
$33,763

9. Ernie's Home Repair had beginning long-term debt of $51,207 and ending long-term debt of
 $36,714. The beginning and ending total debt balances were $59,513 and $42,612,
respectively. The interest paid was $2,808. What is the amount of the cash flow to creditors?
Cash flow to creditors = Interest paid – (LTD end-LTD beg) = $2,808 - ($36,714 - 51,207) =
$17,301

10. Williamsburg Markets has an operating cash flow of $4,267 and depreciation of $1,611.
Current assets decreased by $1,356 while current liabilities decreased by $2,662, and net
fixed assets decreased by $382 during the year. What is free cash flow for the year?
FCF = OCF - depreciation – decreased in CL +decreased in CA + Decreased in NFA
= $4,267 – 1,611 – 2,662 + 1,356 + 382 = $1,732

11. For the year, B&K United increased current liabilities by $1,400, decreased cash by $1,200,
increased net fixed assets by $340, increased accounts receivable by $200, and decreased
inventory by $150. What is the annual change in net working capital?
Change in NWC = increased CL + decreased cash + increased AR + decreased
inventory
= −$1,400 − 1,200 + 200 – 150 = −$2,550

12. TJH, Inc. purchased $145,000 in new equipment and sold equipment with a net book value of
$68,400 during the year. What is the amount of net capital spending if the depreciation was
$38,600?
Net capital spending = Énd NFA – Beg NFA = $145,000 − $68,400 = $76,600
Because the actual expenditure on capital and sale of capital figures are already provided,
we are not backing them out from the balance sheer in the usual way.

13. At the beginning of the year, Trees Galore had current liabilities of $15,932 and total debt of
$68,847. By year end, current liabilities were $13,870 and total debt was $72,415. What is
the amount of net new borrowing for the year?
Net new borrowing = (total debt – current liabilities) end - (total debt – current liabilities)
beg
=($72,415 − $13,870) − ($68,847 − $15,932) = $5,630

14. The budget committee of Suppar Company collects the following data for its San Miguel
Store in preparing budgeted income statements for May and June 2020.
1. Sales for May are expected to be $800,000. Sales in June and July are expected to be 5%
higher than the preceding month.
2. Cost of goods sold is expected to be 75% of sales.
3. Company policy is to maintain ending merchandise inventory at 10% of the following
month’s cost of goods sold.
4. Operating expenses are estimated to be as follows:
Sales salaries $35,000 per month
Advertising 6% of monthly sales
Delivery expense 2% of monthly sales
Sales commissions 5% of monthly sales
Rent expense $5,000 per month
Depreciation $800 per month
Utilities $600 per month
Insurance $500 per month
 5. Interest expense is $2,000 per month. Income taxes are estimated to be 30% of income
before income taxes.
Requirements:
a.  Prepare the merchandise purchases budget for each month in columnar form.
b.  Prepare budgeted multiple-step income statements for each month in columnar form.
Show in the statements the details of cost of goods sold.
Exe 1: A company made a loss on the disposal of a company motor vehicle of $8,000. The vehicle
originally cost $50,000 and at the date of disposal, accumulated depreciation on the vehicle was
$20,000. 
Net FA = 30000
bán lỗ 8000 -> bán với giá 22000
Required: What are the items that should be included for the disposal of the vehicle in the statement
of cash flows for the year: 
(a) in the adjustments to get from operating profit to cash flow from operations? loss on disposal:
8000
(b) under the heading: ‘Cash flows from investing activities’?
sale of equipment: 22000

Exe 2: A company made an operating profit before tax of $16,000 in the year just ended.
Depreciation charges were $15,000. There was a gain of $5,000 on disposals of non-current assets
and there were no interest charges. 
Values of working capital items at the beginning and end of the year were: 
    
Receivables Inventory Trade payables

Beginning of the year 9000 3000 4000

End of the year 6000 5000 6500

Changes (3000) 2000 2500

Taxation paid was $4,800. 

Required: Calculate the amount of cash generated from operations, as it would be shown in a
statement of cash flows using the indirect method. 
Net income = PBT - Tax = 16000 - 4800 = 11200
Depreciation                                                15000
Gain                                                             (5000)
Decreases in receivables                             3000
Increase in inventory                                    (2000)
Increase in trade payables                           2500
=> NCF from operations                              $24700

Exe 3: A company had liabilities in its statement of financial position at the beginning and at the end
of Year 1, as follows: 
Liability for interest charges Liability for taxation

Beginning of Year 1 4000 53000

End of Year 1 3000 61000

During the year, interest charges in the income statement were $22,000 and taxation on profits
were $77,000. 
Required: Calculate the amounts of interest payments and tax payments (cash flows) for inclusion
in the statement of cash flows 

EB = BB + increase - decrease
BB increase decrease EB

Interest pay 4000 22000 23000 3000

Tax pay 53000 77000 69000 61000

Exe 4: The motor vehicles of PM company: 

 At cost Acc Depreciation Net book value

BB 150000 (105000) 45000

EB 180000 (88000) 92000

EB - BB 30000 17000 47000

During the year a vehicle was disposed of for a gain of $3,000. The original cost of this asset was
$60,000. Required: Calculate the cash paid for PPE acquired.

Khi thanh lý tài sản trong kỳ, phần khấu hao của tài sản đó sẽ giảm trừ trong accumulated
depreciation (i.e phần giảm của acc dep chính là khấu hao của tài sản thanh lý)
Cash paid for PPE acquired = CFI - CFO = (3000+17000) - (60000+30000) = (70000)

Exe 5: The statements of financial position of Grand Company at the beginning and end of Year 1
include the following information: 
Beginning of year 1 End of year 1

Property, plant and equipment cost/re‐valued amount 1,400,000 1,900,000

Accumulated depreciation 350,000 375,000

Carrying value (NFA) 1,050,000 1,525,000

During the year, some property was revalued upwards by $200,000. An item of equipment was
disposed of during the year at a profit of $25,000. This equipment had an original cost of $260,000
and accumulated depreciation of $240,000 at the date of disposal. 
Required: Calculate the amount of cash paid for PPE acquired

Beginning of increase decrease End of EB - BB

Year 1 (disposal) Year 1

Property, plant and 1,400,000 760,000 260,000 1,900,000 500,000

equipment cost/re‐valued
amount (1)

Accumulated depreciation 350,000 265,000 240,000 375,000 25,000

Carrying value (NFA) 1,050,000 495,000 20,000 1,525,000 475,000

1. EB - BB = increase - decrease ⇔ 500000 = (200000 + increase) - 260000

=> increase = 560,000 (cost of new FA)
định giá lại (revalue) : phần mua thêm = tổng tăng - phần định giá lại 
Disposal NFA = 260000 - 240000 = 20000
Disposal FA : price - NFA = gain/loss ⇔ price = 25000 + 20000 = 45000 

cash paid for PPE acquired = NCF = (25000 + 20000) - 560000 = (515,000)

*Khi định giá lại giảm: giá giảm, tài sản mới tăng thêm bù cho phần chi phí tài sản cũ bị giảm
NOTE: NFA: đã tồn tại từ trước
ko ghi nhận là chi phí, nếu có lợi nhuận ghi gain/loss (1 dòng trên IS)
ko ghi nhận là other rev hay other cost 
thực tế cần bỏ chi phí để sửa chữa tài sản thanh lý (maintenance, delivery cost…)

ex: thanh lý tài sản với price = 45000 -> CFI

NFA = 20000
other = 1000                                           => tổng cost = 21000 (bỏ ra 21000 để thu về 45000)

Exe 6: The statements of financial position of Entity PLM at 1 January and 31 December included
the following items: 
1 January Year 1 31 December Year 1

Equity shares of $1 each (Common stock) 600,000 750,000

Share premium (Preferred stock) 800,000 1,100,000

Required: Calculate the cash generated from issuing new shares.
150000 + 300000 = $450,000

Exe 7: The statements of financial position of Entity PLM at 1 January and 31 December included
the following items: 

1 January Year 1 31 December Year 1 EB - BB

Loans repayable within 12 months 760,000 400,000 (360,000)

Loans repayable after 12 months 1,400,000 1,650,000 250,000

Required: Calculate the net CF relating to loans during the year
Net CF = CFI - CFO = 250000 - 360000 = (110,000)

khi loans repayable giảm -> dòng tiền đi ra do doanh nghiệp đã trả được 1 phần nợ 

Exe 8: From the following information, calculate the cash flows from investing activities for Penron
Company in Year 1. 

beginning of year 1 End of Year 1 EB - BB

Share capital (ordinary shares) 400,000 500,000 100000 (1)

Share premium 275,000 615,000 340000 (2)

Retained earnings 390,000 570,000 180000 (3)

1,065,000 1,685,000

Loans repayable after more than 12 600,000 520,000 (80000)

months

Loans repayable within 12 months or 80,000 55,000 (25000)

less
The company made a profit of $420,000 for the year after taxation. 
Required: Calculate for year 1, for inclusion in the statement of cash flows: 
(a) the cash from issuing new shares = (1) + (2) = 440,000

(b) the cash flows received or paid for loans 

CF paid = 25000 + 80000 = 105,000

(c) the payment of dividend to ordinary shareholders.

Net income = 420,000 = EBT - Tax
Div payments = NI - RE in the year = 420000 - (3) = 240,000

** Net income ₁ div for share premium 

                       ₂ div for equity shares / ordinary shares
                       ₃ RE (vẫn thuộc sở hữu của common stock holders)
CHAPTER 9
9.1
1. Operating Budget establish goals for the company’s sales and production personnel.
2. The Master Budget is a set of interrelated budgets that constitutes a plan of action for a specifi ed time
period.
3. Participative Budgeting reduces the risk of having unrealistic budgets.
4. Financial Budget include the cash budget and the budgeted balance sheet.
5. The budget is formed within the framework of a Sales Forecast
6. Long Range Plans contain considerably less detail than budgets.
9.2
Zeller Company estimates that 2014 unit sales will be 20,000 in quarter 1, 24,000 in quarter 2, and 29,000 in
quarter 3, at a unit selling price of $20. Management desires to have ending finished goods inventory equal to
10% of the next quarter’s expected unit sales. Prepare a production budget by quarter for the first 6 months of
2014.
Zeller Company estimates that 2017 sales will be $40,000 in quarter 1, $48,000
in quarter 2, and $58,000 in quarter 3. Cost of goods sold is 50% of sales.
Management desires to have ending finished goods inventory equal to 10% of
the next quarter’s expected cost of goods sold. Prepare a merchandise
purchases budget by quarter for the first 6 months of 2017.
Answer and Explanation:
As per the data given in the question,
Quarter                                       1                        2                     6 month
Budgeted cost of goods sold (40,000×0.50)    (48,000×0.50)    $44,000
                                                        $20,000          $24,000
Add: Desired ending inventory (24,000×0.10)   (58,000×0.10)    $8,200
                                                         $2,400            $5,800
Total required units              $20,000+$2,400   $24,000+$5,800  $52,200
                                                         $22,400           $29,800
Less: Begin. merchandise inv. $20,000×0.10    $24,000×0.10      $4,400
                                                         $2,000             $2,400
Budgeted purchase                        $20,400           $27,000          $47,800

9.3
Ash Creek Company is preparing its master budget for 2014. Relevant data pertaining to its sales, production,
and direct materials budgets are as follows.
Sales. Sales for the year are expected to total 1,000,000 units. Quarterly sales are 20%, 20%, 30%, and 30%,
respectively. The sales price is expected to be $40 per unit for the first three quarters and $45 per unit
beginning in the fourth quarter. Sales in the first quarter of 2015 are expected to be 20% higher than the
budgeted sales for the first quarter of 2014.
Production. Management desires to maintain the ending finished goods inventories at 25% of the next
quarter’s budgeted sales volume.
Direct materials. Each unit requires 2 pounds of raw materials at a cost of $12 per pound. Management
desires to maintain raw materials inventories at 10% of the next quarter’s production requirements. Assume
the production requirements for first quarter of 2015 are 450,000 pounds.
Prepare the sales, production, and direct materials budgets by quarters for 2014.
Q1:
Sales = 1,000,000 x 20% = 200,000 units
Revenue = 200,000 x $40 = $8,000,000
Q2:
Sales = 1,000,000 x 20% = 200,000 units
Revenue = 200,000 x $40 = $8,000,000
Q3:
Sales = 1,000,000 x 30% = 300,000 units
Revenue = 300,000 x $40 = $12,000,000
Q4:
Sales = 1,000,000 x 30% = 300,000 units
Revenue = (250,000 x $40) + (50,000 x $45) = $10,750,000

Total Revenue = $38,750,000

Production Budget:
Q1:
Production = 200,000 / (1 - 0.25) = 250,000 units
Raw Materials Required = 250,000 x 2 kg = 500,000 kg
Q2:
Production = 250,000 / (1 - 0.2) = 312,500 units
Raw Materials Required = 312,500 x 2 kg = 625,000 kg
Q3:
Production = 250,000 / (1 - 0.2) = 312,500 units
Raw Materials Required = 312,500 x 2 kg = 625,000 kg
Q4:
Production = 300,000 / (1 - 0.2) = 375,000 units
Raw Materials Required = 375,000 x 2 kg = 750,000 kg

Raw Materials Budget:

Q1:
Raw Materials Required = 500,000 kg
Add: Desired ending inventory = 10% x 625,000 kg = 62,500 kg
Total Raw Materials Required = 562,500 kg
Less: Beginning inventory = 10% x 500,000 kg = 50,000 kg
Raw Materials to be Purchased = 512,500 kg x $10/kg = $5,125,000
Q2:
Raw Materials Required = 625,000 kg
Add: Desired ending inventory = 10% x 625,000 kg = 62,500 kg
Total Raw Materials Required = 687,500 kg
Less: Beginning inventory = 10% x 562,500 kg = 56,250 kg
Raw Materials to be Purchased = 631,250 kg x $10/kg = $6,312,500
Q3:
Raw Materials Required = 625,000 kg
Add: Desired ending inventory = 10% x 625,000 kg = 62,500 kg
Total Raw Materials Required = 687,500 kg
Less: Beginning inventory = 10% x 687,500 kg = 68,750 kg
Raw Materials to be Purchased = 618,750 kg x $10/kg = $6,187,500
Q4:
Raw Materials Required = 750,000 kg
Add: Desired ending inventory = 10% x 750,000 kg = 75,000 kg
Total Raw Materials Required = 825,000 kg
Less: Beginning inventory = 10% x 687,500 kg = 68,750 kg
Raw Materials to be Purchased = 756,250 kg x $10/kg = $7,562,500

9.4
Ash Creek Company is preparing its budgeted income statement for 2014. Relevant data pertaining to its
sales, production, and direct materials budgets can be found in 9-3. In addition, Ash Creek budgets 0.3 hours
of direct labor per unit, labor costs at $15 per hour, and manufacturing overhead at $20 per direct labor hour.
Its budgeted selling and administrative expenses for 2014 are $6,000,000.
(a) Calculate the budgeted total unit cost.
(b) Prepare the budgeted income statement for 2014.
9.5
Batista Company management wants to maintain a minimum monthly cash balance of $20,000. At the
beginning of April, the cash balance is $25,000, expected cash receipts for April are $245,000, and cash
disbursements are expected to be $255,000. How much cash, if any, must be borrowed to maintain the desired
minimum monthly balance?
Current Cash Balance = $25,000

Cash Receipts = $245,000

Cash Disbursements = $255,000

Then, Cash balance at the end of the month:

Cash balance at the end of month = current cash balance + cash receipts – Cash dis

= $25,000 + $245,000 - $255,000 = $15,000

Then, the Desired Cash Balance is:

Desired cash balance = Minimum cash balance – cash balance at the end of the month

= $20,000 - $15,000 = $5,000

Therefore, $5,000 needs to be borrowed by the Batista company.